China Ends Lithium Battery Consumption Tax Exemption..."Secures 22 Trillion Won in Tax Revenue"

"Addressing Cutthroat Competition"
Phased Implementation Begins in September

Tax Exemptions to Continue for Advanced Batteries Like Sodium-Ion and Solid-State

China has reduced its consumption tax exemption benefits for its domestic battery industry in order to boost tax revenue.

According to reports from Chinese media such as China Business News and Securities Times on the 19th, China's Ministry of Finance, General Administration of Customs, and State Taxation Administration recently announced the "Notice on Adjusting Certain Battery Consumption Tax Policies." The key point is that the government will gradually resume imposing consumption taxes on battery products that were previously tax-exempt, including mercury-free batteries, lithium-ion batteries used in electric vehicles, laptops, and smartphones, and photovoltaic batteries.

The Chinese authorities plan to first impose a 2% consumption tax on mercury-free batteries and lithium-ion batteries starting from September this year, then raise the rate to 4% from September next year. For photovoltaic batteries, a 2% rate will be applied starting in April next year, increasing to 4% from April 2028. However, for new emerging high-tech products such as sodium-ion and solid-state batteries, the government has decided to apply a phased tax exemption policy until the end of 2028.

This notice also signifies the official end of the tax exemption policy for lithium batteries for electric vehicles, which China has implemented for over a decade. In January 2015, the Chinese government included batteries in the consumption tax scope, imposing a 4% tax rate at the stages of production, processing by commission, and import. At that time, lithium-ion batteries, fuel batteries, and photovoltaic batteries were exempted as part of efforts to support the development of what was then an emerging industry.

According to data released by the China Automotive Power Battery Industry Innovation Alliance, as of the first half of this year, the cumulative production volume of power and energy storage batteries in China reached 1,068.9 GWh, marking a 53.3% increase compared to the same period last year. The cumulative sales volume was 979.4 GWh, up by 48.6%, while the installed volume of power batteries in vehicles was 335.6 GWh, an increase of 12%.

The problem is that, under the government's support policies, chronic issues have emerged such as domestic industry oversupply and excessive low-price competition, which have damaged profitability. Analysts suggest that if battery companies can pass the increased tax costs onto the export stage through the supply chain, a model of "gaining profits externally and seeking reform internally" could succeed. However, if companies fail to pass on these costs, they may consider exiting the market, thereby curbing overheated internal competition.

With the end of tax exemption benefits for lithium batteries and related products, China's tax revenues are also expected to rise. In 2023, domestic consumption tax from the electrical machinery industry that includes batteries was 5.4 billion yuan (about 1.2 trillion won). Projections indicate that this tax revenue may rise to around 100 billion yuan (approximately 22 trillion won) in the future, which would be comparable to the automotive consumption tax.

This content was produced with the assistance of AI translation services.